Optimal Listing Strategy: Why Microsoft and Intel Do Not List on the NYSE

Many large firms have chosen not to list on the NYSE, despite meeting NYSE listing requirements. Dealer markets such as Nasdaq have higher quoted bid-ask spreads than auction markets like the NYSE. However, these higher spreads give broker-dealers an incentive to market a stock, expanding the pool of investors willing to hold the stock. Firms face a tradeoff between the low transaction costs of an auction market and the marketing advantages of a dealer market. New technologies allow institutional investors to bypass dealers, making it possible for large firms to have the best of both worlds: The dealer network markets the stock to retail investors while institutions have low transaction costs. The model also explains why firms can have positive price reactions when they switch from Nasdaq to AMEX and also when they move from Nasdaq to AMEX. Furthermore, the model is consistent with the curious fact that closed-end funds, unlike other firms, overwhelmingly list on exchanges, and that brokerage firms tend to list their own stocks on exchanges even while bringing other firms public on Nasdaq.